All posts tagged economy

It’s a common word and easy to understand. It might come as a surprise that some of the corporate participants gathered at the annual meeting of the World Economic Forum here expressed business optimism. It is important to remember it is optimism of a quite particular sort. It is an optimism filled with caveats, short-term in nature and narrowly focused on people’s own businesses and industries.

So while it is true one can find optimism talking with business leaders here in the Swiss Alps, let’s be clear: Sometimes people are optimistic because they simply expect to be able to carry on despite great challenges.

The dark clouds hovering over the economies of southern Europe are moving north, with the building and construction industries feeling the brunt of the manufacturing industry’s pain, says the chief executive of the region’s largest aluminum producer, Norsk Hydro.

“We have our facilities all over Europe so we have a specific feel not just for the global economy but also the European situation, and we really see that the dark clouds from the south are moving north,” Svein Richard Brandztaeg says.

“If you look at the total market, it’s not the same situation as in the 2008 crisis because that was global, but if the euro fails and Europe fails to deliver against expectations for a long-term solution, then I cannot rule out a really difficult and long-term difficult situation in Europe. The downturn is 80% Europe.”

The fall in U.K. economic output was a surprise and a disappointment, even allowing for the extreme weather that depressed the figures, Chancellor of the Exchequer George Osborne said Saturday.

The economy contracted 0.5% in the fourth quarter, reviving fears that the austerity program introduced by the coalition government may derail the economic recovery. Analysts estimated that even after adjusting for the coldest December in 100 years, output would have stagnated.

Mr. Osborne argued that the recovery is still intact and that the economy is rebalancing, as households and the financial sector reduce their debt levels. But he noted that work still needs to be done to stimulate business investment.

“British corporates are sitting on cash worth around 5% of (gross domestic product) and what I’ve got to do in the next few months is to persuade them to start spending that money,” Mr. Osborne said.

Inflation on a global level is “not high on the list of concerns,” even though emerging markets across the world are certainly “feeling some pressure,” U.S. Treasury Secretary Timothy Geithner said Friday.

Mr. Geithner told the World Economic Forum in a one-on-one interview that emerging markets could manage their inflation problems better if they loosened their currencies’ links to the dollar, a measure that economists say would lead in most cases to an appreciation against the greenback.

Mr. Geithner also said he’s “very confident that the euro will survive, but argued that Europe needs time to put in place the fiscal and structural reforms that will make that possible.

As for the U.S.’s own fiscal problems, Mr. Geithner admitted that the current position is “unsustainable in the long run” and said the government needs to lay out a credible, multiyear path to sustainability. He bemoaned the fact that the U.S. political system lacks any mechanism to enforce this.

The Davos discussion seems to be avoiding some big issues this year, says Sir Martin Sorrell, CEO of WPP and one of the world’s leading image meisters.

Income inequality and its effects on economic growth and stability is one of the overlooked issues. Mr. Sorrell said there needs to be more focus on how excessive wealth concentration can lead to insufficient consumer demand and unproductive investment, feeding bubbles and subsequent economic busts.

Asked if the Davos crowd had become complacent this year, he said yes, and maybe “a little bit arrogant.”

While there’s a tone of increasing optimism here at the World Economic Forum, and many stock markets around the world are up significantly, Wal-Mart remains cautious about the American consumer based on their spending habits.

With 150 million customers walking into U.S. stores each week world, the world’s biggest retailer is in a position to know the state of typical American middle and lower income consumer.

Wal-Mart Stores CEO Mike Duke said Thursday at a breakfast here in Davos that he remains cautious on consumer spending despite the improving optimism and economic data.

Spending at Wal-Mart suggests the core customer doesn’t share the optimism shown among upper income Americans. The vast majority have a cautious attitude.”

Its food and other stable businesses are doing OK but discretionary spending less so, he noted. No geographic U.S. area is more positive than any other in particular, he added.

Treasury Secretary Timothy Geithner, speaking shortly before the World Economic Forum in Davos, Switzerland, said he will reassure the global movers and shakers there that the U.S. has the political will and capacity to address its fiscal deficit and deliver on the program President Barack Obama outlined in his State of the Union address Wednesday.

At Davos, Geithner said in an interview, “If you’re relevant to the policy of the U.S., they want to look you in the eye and see whether you have an understanding of your challenges. My job is to explain what we’re trying to achieve, what’s hard and where we’re doing better.”

“What they want to know,” he added, is: “Do we have a reasonable chance to get ahead of our fiscal problem? And they want to know if there is going to be any political will to achieve the agenda the president laid out this week? I will tell them: Yes and yes.”’

Geithner added that the mood of both investors and business executives regarding the U.S. economic recovery has improved in the past several months.

On Thursday, the Treasury said, Geithner will meet in Davos with members of the World Economic Forum International Media Council and participate in a couple of open discussions. On Friday, he’ll be interviewed by TV show host Charlie Rose on “Priorities for the U.S. Economy,” and attend a session, “Reform of the International Monetary System.”

The secretary also plans bilateral meetings with with Belgian Prime Minister Yves Leterme, European Central Bank President Jean-Claude Trichet, U.K. Chancellor of the Exchequer George Osborne and Swiss Finance Minister Eveline Widmer-Schlumpf.

For Dr. Doom the economic glass is half full. And half empty. At the opening panel, “What is the New Economic Reality,” at the World Economic Forum meeting in Davos, many were awaiting the words of Nouriel Roubini, the economist famously credited with predicting the financial crisis in 2006.

Roubini gave bullet points for his more tempered view this year versus one year ago, though by the end of the panel discussion it seemed clear he wasn’t very optimistic, only less pessimistic. He said the global economic risk picture was broadly in balance, like glass half full or half empty. The economist likes to enumerate his view points and today was no exception.

On the positive side, he acknowledged that not only is the global economy recovering, the latest data show it to be accelerating. Secondly, the risk of a double dip is lower than it was last year, he added. Corporate balance sheets are strong, and companies have slashed labor costs, he pointed out. “If they want to do more in the way of capital expenditures and spending, they can do so.”

It’s clear too, he added, that emerging markets are doing well in general. Finally, risk aversion seems to have receded.

But Roubini wouldn’t be Dr. Doom without a set of worrying counterpoints to that merry picture.

The world’s top corporate bosses are once again brimming with confidence over prospects for economic growth and see emerging markets leading the way, according to a global survey released Tuesday on the eve of the World Economic Forum’s annual gathering.

Forty-eight percent of the 1,201 CEOs interviewed by PricewaterhouseCoopers said they were “very confident” of growth in the next 12 months, up significantly from 31% who registered the same degree of confidence in a survey last year and near the 50% level seen in 2008, just before the financial crisis triggered the worst global downturn since the Great Depression.

About Davos Live

Davos Live provides updates from the World Economic Forum’s annual talkfest in Davos, Switzerland, which draws more than 2,500 business, political and academic leaders for a five-day program of workshops and panel discussions. A team of reporters and editors from The Wall Street Journal and Dow Jones Newswires is on the scene, and will be posting news, commentary and gossip as the conference unfolds.